The Stretch IRA Is Dead
- Thread starter Tahoe Ray
- Start date
- 4,575
Means an even greater need for clients that dont need or want their RMD income to transition some to tax free accounts such as purchasing life insurance with the interest or RMD, or gradually converting to Roth IRA if uninsurable or against buying life insurance. I am guessing that Traditional IRAs invested in Annuities also wont be able to have beneficiaries annuitize the money for any payout over 10 years, thus eliminating some of the great payout rates available in old contracts
My mother passed away just 5 weeks before this law passed. I elected to utilize a stretch IRA and disclaim another large IRA so my young kids received it into Stretch IRA that will stretch out payments for 35 years in my case & 65-70 years on my kids case. I understand why the law changed
This 10 year is going to catch some people off guard as there is no RMD required during those 10 years. So, some beneficiarys that elect 10 year might leave it & forget & then get a notice in year 10 that the entire amount must be distributed & thus taxed.
Ironically, this also elimates the stretch on NQ annuity that some carriers have allowed. Those will have to follow the existing 5 year deferral rules.
Thanks Ray.... good read.
I read an article a while ago with stats on how many folks actually stretched, etc. It was pretty low, lower than I thought it would. It appears most folks want their money now, especially when there are several beneficiaries.
10yr payout works perfect for a 10pay WL
I read an article a while ago with stats on how many folks actually stretched, etc. It was pretty low, lower than I thought it would. It appears most folks want their money now, especially when there are several beneficiaries.
10yr payout works perfect for a 10pay WL
- 4,575
Thanks Ray.... good read.
I read an article a while ago with stats on how many folks actually stretched, etc. It was pretty low, lower than I thought it would. It appears most folks want their money now, especially when there are several beneficiaries.
10yr payout works perfect for a 10pay WL
unless the agent/rep for the IRA at the time of death is fee based or something, maybe the stretch IRA is being underutilized because the rep servicing the account either didn't understand stretch or was thinking about commission needs first.
I like your idea on 10 pay WL or 10 year pay into a hybrid LTC, but I am thinking it would be best if the original owner of the idea bought those policies with RMD or withdrawals. other than the spouse beneficiary that can still assume the IRA, I tend to see most of the children beneficiary having plans to spend the money received when an IRA owner died.
- 6,459
Wouldn't this depend on the amount of money involved per beneficiary?
Even for children beneficiaries, wouldn't there be some point where the income tax payments would cause them to hesitate about taking it all at once?
When I read pfg's comment, I thought perhaps it comes around because there might be a lot more ira's in the amount of $2,589.25 than ones for $549,682.72. And then further, a lot of the 500K plus ones would have multiple beneficiaries, which would then diminish the amounts received PER BENEFICIARY, leading right back into immediate withdrawal.
Even for children beneficiaries, wouldn't there be some point where the income tax payments would cause them to hesitate about taking it all at once?
When I read pfg's comment, I thought perhaps it comes around because there might be a lot more ira's in the amount of $2,589.25 than ones for $549,682.72. And then further, a lot of the 500K plus ones would have multiple beneficiaries, which would then diminish the amounts received PER BENEFICIARY, leading right back into immediate withdrawal.
- 4,575
great point. I bet the # of cases that didn't elect stretch were very high, but it wouldn't mean that large cases didn't elect stretch. But even 500k with 5 beneficiaries was likely smart to do stretch as 100k added to most people's tax return in 1 year would not only push them through a few tax brackets, but also eliminate some tax deductions & cause them to pay some medicare taxes on high income earners. So, a stretch letting them take 5-10K would have been more digestable on the tax return in addition to the compounding of the funds staying invested
the irony is that the government assumptions on how much tax revenue that will be generated by this killing of the Stretch IRA probably assumed 100% of all IRA fund values worldwide were electing maximum stretch to grandchildren & great grandchildren
Producer Patrick
New Member
- 5
sad how often government ignores how people act when deciding how to treat us.
- 11,277
The government is the greatest "spin-seller" out there.
How would the government spin this? "Only RICH people can afford to 'stretch' their IRA."
It's not just tax RATES that can go up, but the elimination of certain loopholes and deductions. "Only rich people itemize their deductions" is what they'll say.
When the avg person (that has little financial education) gets the option to receive the lump sum of $100k or stretch it for $5k/yr, imo they won't stretch. With the big check they can pay off debt, get a new car, etc... They don't care if they have to pay a little extra tax. And maybe for some it does make sense to take the lump sum given their situation, however its also likely that many don't even know they could stretch it.
Given the low tax environment we are in, paying the tax on their inheritance today at a known rate (even if its higher than stretching would be) might be in their best interest long term. Assuming they don't blow the money.
Another article I read a while back stated that the avg person fully spent their inheritance in less than 3yrs. The lack of basic financial education is massive in our country. Dave Ramsey can attest to that, he's got a $175MM business - selling common sense.
